State-Led Drive Aims to Close Technology Gap

BloombergChemezov, right, shaking hands with an Indonesian official after signing a $330 million deal in Moscow in August.
He walks with a cane and is a bit hard of hearing. Yet Boris Chertok, 95, a former deputy chief designer in the Soviet bureau that put the first Sputnik satellite into orbit 50 years ago, still has strong opinions on the evolution of the country's space program.

Chertok says the free-market changes instituted by President Boris Yeltsin after the Soviet Union fell apart were disastrous for Russian science. "We need to restore what we have lost over 15 years of destructive reforms," said Chertok, whose very name was once a state secret. "The market economy is incapable of fulfilling such large national programs as flight to the moon."

President Vladimir Putin is listening. He has launched a new program to make the country a scientific and technological power -- in space and missile rocketry, where it excelled in Soviet times, and in a half dozen other areas.

The effort is being managed by First Deputy Prime Minister Sergei Ivanov, who wants to spend at least $60 billion of the country's windfall oil and gas earnings over the next 10 years to make the country a global tech titan.

"We are consolidating assets and focusing government attention on high-tech industries: nuclear energy, space, nanotechnology, aircraft and shipbuilding," Ivanov said in October after attending a meeting on nuclear energy.

The government has earmarked 674 billion rubles ($27.4 billion) for nuclear energy, 246 billion rubles for aerospace, 149.4 billion rubles for electronics and 130 billion rubles for nanotechnology, the manipulation of particles smaller than a billionth of a meter.

The Economic Development and Trade Ministry says its goal is to capture 10 percent of the global IT and office equipment market by 2020.

A sharp decline in state funding for science and education since 1991 has made catching up with the West harder. "If we don't bridge the gap by 2015, then in the near future, our foreign competitors may not only push us out of the global high-tech market but also the domestic market," Sergei Chemezov, newly named head of the Russian Technologies state corporation, and a close ally of Putin's, said at an industry meeting in September.

Another obstacle is a lack of interest in technical careers among young people, said former cosmonaut Alexander Volkov, who was circling the Earth in the Mir space station when the Soviet Union was dissolved.

"We have squandered our best minds," said Volkov, 59, now retired. "When they were asked before about their future profession, young people said they wanted to be a scientist, a geologist, a cosmonaut. Now they want to be businessmen. It's money, money, money."

For Putin and Ivanov, space remains a high priority. Anatoly Perminov, head of the Federal Space Agency, told RIA-Novosti that it spent 24.4 billion rubles ($1 billion) in 2007 on the international space station and other projects.

The government is implementing a program to invest 305 billion rubles in its space program from 2006 to 2015, according to the agency's web site. It plans to put a man on the moon by 2025 and on Mars after 2035.

On a more practical level, the country is spending 9.9 billion rubles in 2007 to turn its Global Navigation Satellite System, or Glonass, into a rival of the U.S. Global Positioning System, or GPS. The government plans to have full coverage with 24 satellites in orbit by 2010.

By 2015, Glonass will be selling tens of billions of dollars of services annually to operators of mobile communications devices around the world, said Yury Urlichich, head of the Research Institute of Space Instrument Building.

The government has an equally ambitious strategy for aerospace. On Sept. 26, state-run Sukhoi, until now known as a maker of fighter planes, rolled out its first Superjet, part of a family of airliners seating 75 or 95 passengers that is the centerpiece of the government's plan to become the No. 3 maker of commercial airplanes, after Boeing and EADS, which owns Airbus. That effort is being assisted by Boeing, which has a major design center in Moscow.

In the Soviet era, the country was the world's No. 1 producer of combat aircraft and No. 2 in civilian airliners, after the United States, said Richard Aboulafia, vice president of the Teal Group, a Fairfax, Virginia-based aerospace consulting firm. The number of combat planes being produced today is classified. Since the early 1990s, according to a March report by the Transportation Ministry, Russia has produced just 36 commercial jets.

Sukhoi is one of several airplane design and manufacturing companies that have been rolled into a single government-controlled conglomerate, United Aircraft Corporation. And that's the Soviet-style model the government has adopted to speed along its technology industries.

The Atomic Energy Industry Complex, which was created in July, is bringing together all companies involved in producing nuclear energy, from uranium miners to turbine makers, to energy producers, into one big company. In July, the Kremlin also created the Nanotechnology Corporation. The most recent government creation is Russian Technologies, another state corporation, which was formed out of assets controlled by state arms trader Rosoboronexport.

Roland Nash, chief strategist at Renaissance Capital, is skeptical of the approach. The history of high-tech innovation, he says, is one of small companies.

"Large, state-run firms may have a role to play in building out economies of scale but not to spark invention," Nash said. "To kick-start technology, state funds would be better spent on promoting the top-level education and research for which Russia is justifiably famed."

Until his recent promotion, Chemezov was head of Rosoboronexport, which he transformed into a conglomerate that includes carmaker AvtoVAZ and VSMPO-Avisma, the world's biggest titanium alloy producer.

Putin and Ivanov are trying to accelerate change by building information technology industrial parks -- an idea Putin brought back from a tour of Bangalore, India, in 2004. Construction of seven to 10 parks will begin in 2008, IT and Communications Minister Leonid Reiman has said.

Companies that locate in the parks will get tax breaks. More than 200 have expressed interest, including Cisco Systems, Hewlett-Packard, Intel and IBM, the ministry says.

For now, the country is an IT laggard. It was 48th, behind India and the Philippines, in an Economist Intelligence Unit ranking in July of countries' ability to support a competitive IT environment.

Though it churns out more than 200,000 science and technology graduates a year, Russia still lacks the telecoms and Internet connections, financing and intellectual property protetction to become truly competitive, the study found.

The country exported software services worth $2 billion in 2006, according to the IT and Communications Ministry.

More than 30 foreign firms have taken advantage of the country's oversupply of low-paid engineers, computer scientists and mathematicians to set up operations here, according to the Russian Software Developers Association.

Steve Chase, president of Intel Russia, says his workers have qualities hard to find elsewhere. "A typical software programmer in Russia is not a programmer by education," Chase said. "He is more of a scientist -- he is a chemist, or a physicist or a mathematician. They approach problems differently, and we love that, because they are creative."

The country's failure to provide good jobs for scientists has everything to do with the petroleum boom, Chase said. "It's the curse of oil," he says. "There is a general feeling of confidence that Russia has all the money that it needs and so it does not really have to think."

Anatoly Karachinsky, head of IBS Group, the country's largest IT consultant and outsourcing firm, said he's hiring programmers at a rate of about 300 a month to meet growing demand from customers, including Alcatel-Lucent, Deutsche Bank, Boeing and Dell.

"When there is a more-complicated task that needs to be done, Western giants prefer to go to Russian programmers," he said.

So far, the government's efforts to find a niche for its IT industry has not produced a new technology revolution. "They are starting to talk more, but they are not yet walking that talk," Intel's Chase said of the government.

Until they do, the time when Chertok and the other engineers behind Sputnik could boast of Russia's scientific prowess will remain a distant memory.